Updated: Sep 2
So you are moving abroad? You have decided to move abroad for a new adventure but what should you do financially? A new job, retirement, or other exciting ventures may lead you to make the final decision. However, do not forget that the US is a “citizen-based taxation” system, or in other words, you are required to file your US taxes each year even if you live abroad and pay taxes to another country. You may be leaving with a new job and your company is paying your tax preparation services but stay informed. Or retiring overseas but do not forget to file!
1. File US Tax Returns
All US citizens must file their tax returns each year to the IRS. You may not have to pay any additional income taxes if you qualify for the foreign earned income exclusion or foreign tax credit. However, to obtain these benefits, you must file your tax return. Reminder, you may also be required to file your state income tax returns as well.
2. Foreign Bank Accounts
Any non-US financial account that you open abroad may have to be reported to the US Department of Treasury. The Form FinCEN 114, or the FBAR, is required to be filed if your combined value of your non-US accounts exceeds $10,000 at any day during the year. Also, there is a FATCA requirement of reporting specified foreign financial assets that collectively exceed a certain threshold at the end of the year. This reporting is completed with your tax returns directly to the IRS. Reminder: these are for reporting purposes only and no tax is assessed on the balances. However, disregarding to file can bring on substantial penalties.
3. Managing Your Financial Accounts Planning
Because of the FATCA requirements, foreign banks may limit the services they provide to US citizens. Also, US financial institutions may also curb their services to US expats. Research the various institutions. Obtain a financial advisor with the expertise of handling US expats and the tax implications. Perhaps find that financial advisor before you move abroad but it would be great to find a “local” US expert.
4. Do Not Invest In The “Intriguing” and “Interesting” Foreign Instruments!
Did you find your financial advisor with the expertise of US tax implications to US expats? You will need that person to advice on what financial instruments to avoid investing your money. Many “tax-free” plans in foreign institutes could possibly NOT be tax-free for US persons. Look for financial plans that qualify as a pension plan in the United States and are covered by tax treaties between the countries. Some foreign financial investments could result in higher US taxes as well as foreign taxes.
Make sure that your financial professional is licensed and knowledgeable in the jurisdiction that you're moving to.
5. Social Security Coverage and Contribution
It is important to understand how social security is affected when working abroad even with a US company. Are you going to continue to contribute to your social security funds in the US through your company? Are individual contributions from you necessary? Are you employed by a foreign company that will contribute to that country’s social security funds? If so, you may not want to also contribute to the US Social Security Administration. Be wary of double contributions unnecessarily especially for the self-employed. For the self-employed, choose which country you will contribute and obtain a certificate from that country.
Overall, enjoy your adventure of living abroad as an expat but understand the facts that could affect you and your family financially. Remember this applies to all US citizens (and green-card residents) living abroad whether you are working or retired. Contact your financial advisor and US tax experts to ensure your protection and enjoy the cultures!
6. Totalization Agreement
The nations listed below currently have agreements with the US to avoid double taxation of income with respect to social security taxes. When planning in regards to US Social Security/ Medicare tax, you should take these into consideration.
Australia, Austria, Belgium, Canada, Chile, Czech Republic, Denmark, Finland, France, Germany, Greece, Ireland, Italy, Japan, Luxembourg, Netherlands, Norway, Poland, Portugal, Slovakia, South Korea, Spain, Sweden, Switzerland and the United Kingdom.
7. Make sure you convert money effectively
You have many alternatives when considering a large money transfer. You can talk to your bank, but cross-border transfer is big business for financial institutions—so don’t expect affordable rates there. But at least you can get a benchmark on what the market is offering. You also can contact an international-remittance company like Western Union or MoneyGram, but again you might have to cope with stringent transfer limits and weighty paperwork that ultimately could delay the transfer. The third option is a foreign exchange broker, and this type of company typically offers better rates, with discounts that often are 3-4% lower than bank rates. Getting a discounted transfer rate can save you money — lots of it. For example, say you want to buy European-based real property valued at 200 000 Euros. A 2% or 3% rate reduction saves you 2 000 – 3 000 Euros, extra cash you can use to pay for other costs related to the acquisition.
8. Protect your credit score
While living abroad, your credit score back in the US is probably one of the last things on your mind. But it’s important to protect, otherwise if you do ever move home you’ll be starting from scratch, and a low or damaged score could prevent you from qualifying for a mortgage or car loan, among other things. Luckily, a credit score is fairly easy to maintain with just a few steps.
If you are still unsure and need an advise don't hesitate and contact us, one of our advisors would be more than happy to help!